A note on approximating bond returns allowing for both yield change and time passage

Bo Johansson

MPRA Paper from University Library of Munich, Germany

Abstract: A number of papers through the years have addressed the price-yield relationship, the approximation of bond returns and the associated components of price sensitivity. Typically, the research has been focused around the concept of duration and convexity to explain the price sensitivity of a bond to changes in its yield. Fixed income portfolio managers, however, are also interested in what happens to bond prices over a certain investment horizon, i.e. how time passage affect bond returns together with yield changes. Chance and Jordan [1996] examines this in a very neat way by a second order Taylor series expansion around the current market yield

Keywords: Bond returns; bond return approximation; bond price sensitivety; duration; convexity; time value; yield changes; time passage; fixed income; investment horizon; yield scenarios; portfolio optimazation; what-if analysis; break-even analysis; price-yield relationship. (search for similar items in EconPapers)
JEL-codes: E43 G12 G17 (search for similar items in EconPapers)
Date: 2012-07
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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